Be skeptical but don't be cynical. Be opportunistic but not reckless. Be bold but only if the risk seems less palpable than others may grasp.
These are the words that should always be at the tip of your tongue if you are going to invest on days like today. They keep you from shunning the bargains while avoiding the real pitfalls all investors face.
I mention these thoughts because the late Mark Haines used them when he called the fabled Haines Bottom eight years ago today. I loved the call because it was based on Haines recognizing that the risk-reward had gotten out of whack and we had gotten a crescendo of selling that was way too loud and too uniform to make it so it could be right.
I had been very negative on the market all the way down, at one point telling people that if they needed money at any time in the next five years, they should pull it out of the market.
Here's Haines, down 5,000 Dow points later, saying that as fearful as you might have been up higher, the big decline had become too emotional and too unsustainable. It was time to buy, not sell.
I talked to him about the call. He made so few of them so you had to listen. He had his rules about when emotion had overridden logic and panic was peaking and we had finally reached that moment. He was rock in a tsunami of selling and at last he had seen enough. I asked him how sure he was, and he said pretty much everything he had waited for had happened and he had no choice but to go bullish.
I am now hearing the same thing about the other side of the trade. I am now hearing that pretty much everything a bull could want has happened and that we are now in a moment of recklessness.
How can you own stocks when the president says the previous president was taping Trump Tower in a modern-day version of Nixon and Watergate? Just a week ago, we had this very presidential president speaking to both houses of Congress being conciliatory and pragmatic and you could see some of the Democrats trying to figure where they would break ranks and go with the new president. This tweet spree killed that and delayed the agenda of lower corporate taxes and repatriation that many feel is so necessary for the next leg of the market.
Then there's the sheer size of the advance of the move with stocks up 5% since the election, even as the reasons so many want to buy stocks -- those tax provisions -- keep getting pushed back because of the president's foibles.
Yet people complacently keep buying stocks, acting as if all is well.
Isn't it the polar opposite moment of when Haines made his call? Haven't we suspended our critical faculties and ignored the risk that comes from a huge run?
Let me tell you how I come out on this. Today on Scott Wapner's Halftime show, we heard a number of people saying we could have a pullback because of these concerns.
I smiled because I by no means think things are out of hand. First, this weekend, like all weekends, was filled with articles about how the bull market won't last. These stories always have a half-dozen managers who have pulled out and gotten defensive and regard the market as a huge accident waiting to happen.
That's hardly the stuff of euphoria. In fact, I struggle to find anyone euphoric. Many have had their hopes for corporate tax reform dashed by the tweets, so to speak. Not me. I just think it pushes things out. But I like how disappointed so many managers seem to be. Plus, I also believe many money managers are conservative by nature and they just can't figure Trump out and think he is too dangerous, like he's some sort of North Korean leader or something.
I say you have to step away from the Trump-based analysis and realize that the world's a better place. Almost every market I follow is up about as much as ours or more. None of these has Trump at the helm. They just have better business conditions then we have had in some time. You keep rates low enough, it was and is bound to happen, and that's exactly what is going on.
Further, with some domestic retail and restaurant exceptions, our companies have reported some spectacular numbers and given really excellent guidance that emphatically does not include any goodies from Washington.
In short, there is not nearly as much euphoria as you would expect given the strength of the earnings we are seeing worldwide.
There's no doubt that stocks have had big runs and that many of them could fall. But when I looked over the charts this weekend, I found ten groups that were all flying high and it is hard to eradicate all of that positive action.
I found powerful bull markets in the financials, the multinationals, the health cares, aerospace and defense, semiconductors, home and home-related goods, transports like the trucks, the freight forwarders and the rails, the airlines, the travel and leisure stocks and the consumer packaged-goods companies.
That's not some narrow group of stocks leading us higher. That's a plethora of leaders that should embolden you, not make you feel reckless.
In fact, only the restaurants, retailers and oils seem to be rolling over. It's not that easy to sink all those groups at once.
I know the overvaluation of the stock market is expensive, but what if earnings keep coming through as they have in 2017 as the world gets stronger? What if we get some relief from Washington, it's just pushed into 2018?
To me, that's a situation where you have plenty of negative sentiment engendered by concerns about the stability of the administration and its ability to get things done versus a global atmosphere that's improving.
And let's not forget that the president has had a remarkable impact on companies that have held back on projects because they feared executive regulation. The atmosphere is better and the banks are less heavily regulated, which allows them to cash in on the newfound buyers.
So if you put it all together, what do you get? I think you have a situation that is not at all the polar opposite of the Haines Bottom. At that point, it was almost impossible among all of those sell orders to find a bull, someone who believed the market could go higher.
That's what makes Haines' call so remarkable.
But I think it's awfully hard to find people who believe this market will go higher either. The universal skepticism that infuses all thought, the endless articles about the three hedge fund managers who are buying puts or shorting the market or betting against individual stocks or pulling their money out. Those are what color our thinking. I think the big money managers are cynical haters, not skeptical tire kickers. They aren't wary buyers, they are unwary sellers. They despise the setup and find themselves wanting to sell everything at a moment's notice.
So, let's understand this is not a Haines Top moment. I knew him well enough to bet that he would say, "There's plenty of skepticism here. Too much skepticism." And that would keep him in, not out, if he had to make a call.
